The China Syndrome

By Dean_L

China recently was caught red-handed in a major hacking/cyber-spying effort.  Everyone already knew or suspected China has habitually been involved in nefarious cyber-activity.  And now the truth is out and something clearly needs to be done about it.  

Details of the attack were recently released to the public.
A Feb. 19 report from computer security firm Mandiant Corp. asserts that the Chinese government is involved in a major cyber-espionage campaign to steal sensitive data from organizations in the United States and other countries.

The report from Alexandria, Va.-based Mandiant said that since at least 2006 a hacking group in China has stolen hundreds of terabytes of data from as many as 141 organizations. According to the report, the hacking group used internet protocol addresses registered in Shanghai and appears to be linked to a Chinese military unit.
Firstly, let's dismiss the conspiracy theory that the Obama administration is following the Bill Clinton Yugoslavia start-a-war trick to divert attention from other serious issues playbook. Yes, casting China as a villain right now certainly would help the president domestically.  It would distract people from the deficit and sequester issues, which the president is clearly worried about.  And the common enemy could rope in some Republicans to help the president out domestically because, after all, we have a bigger threat that we are all seemingly on the same page regarding.

But China is a problem and it's one that needs to be met face on from a free-trade stand point.  I've always been an advocate of free trade.  The very first lesson in basic economics talks about opportunity cost, and it leads to the obvious conclusion that nations should specialize in production where they have a competitive advantage.  That is helped when there is free trade - it is not a zero-sum game.  Producers and consumers in two nations who engage in free trade with specialization all benefit.  Society itself operates at its most efficient   in that situation.

But free trade assumes a number of things that aren't present with China.  China engages in a modern-day effort of industrial espionage.  China manipulates it's currency to take advantage of America's tendency to promote free trade. China doesn't allow free and open access to its marketplace.  China, a communist worker's paradise, pays it's workers what we'd consider slave wages.  China sells cheap knock-off products around the world that violate copyright and patent laws. China doesn't require worker safety rules that America does.  China bends or changes the rules as required to suit its own interests.  In other words, the playing field is not level.

Nevertheless, China is granted most favored nation status (which imparts on them trade benefits).  It was granted by Bill Clinton and made permanent in 2001.

Free trade only works when both parties act in good faith.  China does not - economically, or in other ways either.  China needs to be dealt with according to their actions.  They should no longer qualify for most favored nation status.  They are stealing intellectual capital from the United States, on a massive scale.  Yes, changes to the relationship with China could create a trade war.  Trade wars are bad.  But it would be worse for China than for the United States.  China could lose access to what it is stealing as well as the market for products from its ill-gotten intellectual gains.  China is enriching itself and empowering itself to the level of superpower in large part on the backs of American intellectual property.

The United States cannot afford to stand by and let that happen, particularly when there are other countries who are willing to play fairly and do not enjoy that same status.  Yes producers in America will be hurt.  Some of them.  But many American companies have benefited by China's status for their production.  They can always move labor to other nations with cheap labor or maybe even onshore those jobs.

There are a lot of possible consequences to work through, but the consequences of inaction, long term, will be far worse.


  1. Other than removing China's Favored Nation status, what exactly could be done to rescue our intellectual property, or stop access to same through cyber space? I can understand the problem. Stratfor was hacked last year, which hurt them. But, how is it possible to stop the spying when we are in a "war" here to retain our internet access which is at risk right now?
    Clue me in, because I feel undereducated in this field.
    PS: I do understand about intellectual property and what it is.

    1. About a decade ago a friend of mine returned to China for a visit. She sent us at work some emails of her trek through her homeland. One of the pictures that she sent was of a Starbucks sign outside a coffee shop. Because it was a digital photo, we are able to zoom in and the first thing I noticed at the bottom of the logo sign was that it did not say Starbucks, but rather Sunbucks. That logo is copyrighted. That is the business equivalent of identity theft. Some local business was trading on Starbucks' name illegally and without permission.

      Intellectual property explained in part here -

      I guess to answer your other question it might require a follow up post.

  2. Trade wars and currency wars quite often lead to shooting wars. Extreme caution must be used in engaging these people. Nations which are significant trading partners seldom go to war.

    That does not mean I favor capitulation. China has internal problems which have been masked by the rapid growth of their economy. It should be noted that when you start from a very low number, the percentage of growth can be mistaken for a healthy economic situation.

    China is stealing passwords and data for a reason. They are having trouble competing. They also have huge problems in their housing market (and other areas) that in all likelihood will make our real estate crash look like child's play.

    IMO, we need level heads, a measured approach, and some of the patience that the Chinese are correctly known for.

    1. Just as with the gun rights issue or illegal immigration, I'm suggesting an escalation is not necessary. Rather, enforcing existing rules would be an improvement over the current situation, and preferable to adding another layer of regulation or effort.

      I have no argument with your point about China having trouble competing. That does not excuse the theft of data, or intellectual property or military technology. China is getting away with not complying with international trade standards, not enforcing rules that are enforced elsewhere. How then, do they merit most favored nation status when they allow criminal activity in the name of commerce? The field has been deliberately tilted in their favor without the full spectrum of consequences beyond cheaper t-shirts being considered.

      By the way, one other thing they are having problems with - sinkholes. Apparently shoddy construction plays a part.


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